We’ve broken down everything you need to know about the short sale process, how to navigate it, and what an active pending short sale means for you as a buyer. —-
You’re on the hunt for a new home, and in addition to aligning yourself with an experienced agent, you’re also probably spending a lot of time perusing various real estate sites and researching available homes in your area. You see a house you love, but the listing shows that it is an “active pending short sale.”
Wait, what? What does that mean? Can you still make an offer on the house, or are you out of luck? And just what is a short sale, anyway?
With help from experienced real estate professionals, we’ve broken down everything you need to know about the short sale process, how to navigate it, and what an active pending short sale means for you as a buyer.
Is a short sale home purchase for you? And can you still make an offer on an active pending short sale? Read on to find out.
Short sales defined
Simply put, a short sale is a property that isn’t worth as much as the seller owes on it. When this happens, the homeowner must negotiate the sale with their lender, as they will be “short” on the full amount owed. The lender has the final say on these types of sales, and all offers must go through them.
Normally, when someone puts their house up for sale, they have some equity in the property and will walk away with money in their pocket after closing. But sellers who find themselves in a situation where they owe more than the house is worth won’t net any kind of profit from the sale of the house. Instead, they have to get the bank to agree to forgive the difference between what they owe on the house and the agreed-upon sales price.
What causes a short sale?
Short sales can happen when people purchase a house at the top of the market, and then home values decrease. The homeowner could also have over-extended themselves with home equity loans or lines of credit, or the property might have some kind of financial lien placed against it, all of which can result in the owner being “underwater” on the home’s value vs. what is owed.
Chicago real estate agent Matt Laricy, who has more than 19 years of experience in the industry and sells properties 56% faster than other agents in his area, says that while short sales aren’t necessarily common in today’s market, he has worked with short sale properties many times in the past.
“With a short sale, the bank is the one accepting the offer,” he says. “The bank is the one who will ultimately be losing money on the deal, so they have to approve it.”
How are short sales different from typical home sales?
In a standard home sale, buyers make an offer on the property, and the sellers can either accept it or make a counter-offer. The seller has enough equity in the home to cover the existing mortgage, and their lender isn’t involved in the sale, aside from providing loan payoff amounts at closing.
But in a short sale, because the seller won’t be able to fully pay off their existing loan on the house, negotiations are approved by their bank.
For buyers, short sales can potentially mean a good deal on a home purchase, but they can also be tricky to navigate.
“The price isn’t guaranteed at all,” says Laricy. “Someone can make an offer for $400,000, and the bank might come back and say the least they will take is $450,000.”
He adds that the short sale process can also be quite lengthy, taking upwards of six months, as opposed to a regular home sale, which only takes about 30 days. “The longest one I’ve ever had took almost 24 months,” he explains.
Buyers may find that there isn’t a lot of wiggle room on the price of a short sale, as lenders are going to base the price on the home’s current market value, and considering they are already going to be accepting less than the house is worth, they are unlikely to consider any low-ball offers. It can also be difficult to get any concessions, such as the seller or lender paying closing costs. And short sale homes are usually sold as-is, so don’t expect a lot of wiggle room with regard to repairs.
The good news is, because the seller is still living in the house, short sale homes are often in better condition than a foreclosed property. While foreclosures tend to move faster than short sales, as the house has already gone through the bank’s foreclosure process, they can also end up in disrepair. Foreclosed homes tend to sit vacant for long periods of time, which can lead to damage from weather or vandalism, as well as having plenty of deferred maintenance.
Active pending short sales
When you see a listing that is showing as an “active pending short sale,” you’re looking at three separate terms that all mean slightly different things.
“Active” means the house is actively listed on MLS, or is actively for sale.
“Pending” means that someone has already made an offer on the house, similar to the term “sale pending” that you might see on other listings. This doesn’t mean, however, that the seller isn’t considering additional offers!
“Short sale” pertains to the seller owing more on the house than it is worth, which also means the bank is now involved and must sign off on the deal.
You might also see terms such as “active short contingent,” which means an offer has been made on the property and is awaiting approval from the bank, as well as “pending short lender approval” or just “short sale contingent.” These all basically mean the same thing — that there is an offer on the house and it is pending final approval.
But even if the property is listed as active pending, you can probably still make an offer. This is where your agent can advise you on what course of action is best.
Why would a seller accept additional offers?
It’s not uncommon for a seller to consider multiple offers on a short sale.
They might think they can get more money for the home if they leave their options open, which does happen sometimes. If they are worried the current offer might fall through, having a backup offer is usually welcomed. And because short sales can be more difficult to navigate and are subject to bank approval, pending offers do tend to have a higher chance of falling through, so sellers are likely to be trying to get as many offers as possible.
Keep in mind, however, that the bank typically reviews one offer at a time, although they will usually accept back-up offers. They won’t usually consider other offers until they’ve reviewed the one already submitted, so you’ll probably be waiting for quite some time before you hear back.
Does it make sense to put in an offer on an active pending short sale?
If, despite the potential obstacles, you really want to try to purchase that pending short sale home you love, make sure you talk to your agent first and gain a good understanding of everything that may or may not be involved in the sale.
Do a walk-through of the property, and review any existing inspections or appraisals available to you. It might also be a good idea to have your agent do a comparative market analysis (CMA) on the property so you can see what other, similar homes have recently sold for in that area.
Ask yourself if your schedule can accommodate the short sale timeline. Do you need to move into a new home as soon as possible, or is this particular house worth what could be a long wait for bank approval? You may also have to deal with some fluctuation in the market between the time you submit your offer and the bank responds.
“The upside is, you might get a better deal,” says Laricy. “But you might also have interest rates go up, or home values go down while you’re waiting.”
If you really want to stand out, you could also consider making a higher offer on the property. The lender is primarily concerned about getting back as much of their investment as possible, so this might be a good move, and worth discussing with your agent.
Above all, patience is key in the short sale process, and even more so with an active pending short sale.
“It can take forever,” says Laricy, “and there are a lot of unknowns in regards to the value of the property. Most of the people who go through this either really love the house, or they’re investors who don’t care if their offer is approved.”
Making an offer on an active pending short sale could be a good decision, as long as you weigh the pros and cons and understand the short sale process. With the help of an agent who knows all the ins and outs, it might just be worth it to put in an offer and see what happens; you never know until you try!
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